Shell Exploration secured the agreement in Tehran with the National Iranian Oil Company to redevelop the Soroosh and Nowrooz oil fields.

Shell has said it did not consider the threat of US sanctions an obstacle to investing in Iran. Washington regards Iran as a sponsor of terrorism.

The US and Iran have an uneasy history

The US passed a law in 1996 allowing it to impose harsh measures against foreign companies investing in the Iranian oil sector.

However, non-US firms were encouraged after Washington waived sanctions against the French firm Total in 1997 following its $2bn gas exploration deal in Iran.

International oil firms have become increasingly aggressive in seeking multi-million dollar deals to develop Iran's huge oil and gas industry and American companies fear that they are missing out.

In March, Iran stepped up the pressure on Washington by inviting US firms to bid for future projects.

190,000 barrels a day

The Soroosh and Nowrooz fields, which were discovered in the early 1960s, are located in shallow waters some 80km west of Kharg Island.

Shell said in a statement that the agreement was part of Iran's "buy-back" programme, under which foreign firms are reimbursed for their investment with a share of future production.

It said reserves in the two fields were estimated at 500 million and 550 million barrels of heavy crude respectively.

The firm plans to start early production at Soroosh in 2001, with both fields fully productive and operational by 2003. Soroosh is expected to produce 100,000 barrels a day, and Nowrooz 90,000.

Shell's exploration and production arm operates in 45 countries around the world.